Fed says US economy making progress as central bank ponders pullback

 The Federal Reserve on Wednesday held interest rates at near-zero, but hinted that the U.S. economic recovery is getting closer to a place where it may not need as much monetary support.

The Federal Open Market Committee on Wednesday kept its benchmark interest rate in the range of 0% to 0.25%, but provided an update on its December 2020 commitment to purchasing at least $120 billion a month in U.S. Treasuries and agency mortgage-backed securities until the recovery looked like it was making “substantial further progress.”

“Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings,” the FOMC statement said. The decision was unanimous.

The policy-setting Federal Open Market Committee noted that inflation still appears to be the result of “transitory factors,” identical to its wording from its last policy decision six weeks ago.

A wide variety of inflationary readings since its June meeting six weeks ago have pointed to further price pressures. The Consumer Price Index, one major measure of inflation, showed prices increasing by 5.4% on a year-over-year basis in June, the fastest pace since August 2008.

Rising prices have spurred some chatter within the Fed over the possibility of more persistent inflation. But some of the high inflation readings over the past few months have been the result of price pressures from microchip shortages (i.e. in car and truck prices) and the ways in which inflation itself is measured (called “base effects”).

Fed Chairman Jerome Powell told Congress two weeks ago that the jury is still out on how persistent inflation will prove to be, arguing that the next six months will paint a clearer picture.

“It will depend on the path of the economy, it really will,” he told the House Financial Services Committee on July 14.

Standing repo facility

The Fed also made an announcement on its intention to set up “standing repo facilities” to improve the plumbing of the financial system.

https://finance.yahoo.com/news/fed-fomc-monetary-policy-decision-july-2021-133205460.html